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Finance planning is the key to business agility in uncertain times

Kshitij Dayal Profile picture for user Kshitij Dayal September 2, 2020
Times of uncertainty require companies to be agile so they can shift plans and operations as conditions change, writes Workday's Kshitij Dayal

Conceptual image with hanging keys and one shining key © zffoto - Shutterstock
(© zffoto - Shutterstock)

The COVID-19 pandemic is continuing to impact businesses and the economy and will for some time to come. But exactly how much remains unclear, and finance officials have to plan around that uncertainty.

Most businesses weren't equipped for what we are now facing, particularly when it comes to planning. Three of four finance executives admit their planning processes have not prepared them for economic and geopolitical disruption of any kind, let alone a global pandemic.

Also, three of four financial planning and analysis (FP&A) practitioners rated "information uncertainty" stemming from COVID-19 as having a significant or moderate impact on their organizations, according to a recent survey by the Association for Financial Professionals.

This uncertainty means finance teams will need to be even more agile to help their companies succeed. Even under normal circumstances, agility is a defining characteristic of businesses that can better anticipate what's coming, act quickly, and decisively respond to the demands of customers, market shifts, and competitive threats. Now, agility has emerged as the essential defining attribute of organizations able to respond to this crisis and chart a new, resilient course for the future.

Finance holds keys to agility

And yet, companies are responding to the challenge. From March 23 to 27, as lockdown orders spread across the US and the impact of the pandemic rose in prominence, customers using Workday Adaptive Planning processed up to 30 times more forecasts and scenarios than in a typical week. That means companies stepped up planning and replanning as conditions rapidly shifted. Since the pandemic's beginning, Workday has seen an overall average increase of 15 times the amount of modeling and re-calibrating as organizations attempt to make sense of the ripple effects of the global pandemic on their businesses.

Finance organizations hold the keys to agility for the entire business because finance is where financial and operational data naturally resides. Because it touches every aspect of a business, finance drives the budgeting and forecasting activities that essentially create the roadmap of that business. Here are three key planning processes that finance can implement to support business agility during times of uncertainty.

  • Scenario planning. Think of scenario planning as harnessing the power of "what if." With a planning platform, you can model multiple scenarios based on everything from competitive threats and supply chain interruption to natural disasters, war, and pandemics. Because no one has historical data for a pandemic, it's important to start off fairly basic with scenario planning. Model some elements from the top line, such as new sales, business renewal activity, and up-sell to existing customers by quarter throughout the year. Consider a range of scenarios possible for your business, perhaps 50%, 65% and 80% of a pre-pandemic plan.

  • Continuous planning. In a volatile marketplace, few things are more important to business agility than a plan that's relevant to what's happening now. Static annual plans, often of limited value as the quarters pass, offer little help in the face of a 'black swan' event that blindsides everyone. The antidote to episodic planning is continuous planning. When operating correctly under the continuous planning framework, planning is not a point in time — it is continuous. With faster planning cycles come budgets that adjust with the shifts and changes of the business and the marketplace. In a continuous, active planning environment, the budget isn't frozen — and it's never obsolete. Companies that implement continuous planning are 1.5 times more likely to be able to re-forecast within just one week, and four times more likely to respond quickly to market change.

  • Rolling forecasts. Rolling forecasts offer a way to course-correct quickly, with enough insight and confidence to make critical decisions on a deadline. Almost 30% of finance officials polled by AFP said they expected to convert to rolling forecasts. Rolling forecasts are modeled on drivers, not details. They're usually forecast four to eight quarters in the future. By providing a continuous forecast over a specific time horizon, actuals move forward each month on a rolling basis. This makes it easier for decision-makers to see what's happening in real time. Rolling forecasts also have consistent horizons. Unlike quarterly re-forecasts, which shorten as you approach the one-year horizon, rolling forecast horizons stay constant.

Opportunity out of crisis

As states, companies, and communities reopen amid the continuing pandemic, companies that remain agile will be in the best position possible to seize opportunities and manage challenges.

Given the continued uncertainty of when a vaccine will be widely available and the different status of the pandemic by region, companies need to continue to be agile. Recovery will occur at different times in different industries. The hospitality industry has been especially hard hit and recovery will be "extended and variable," reports McKinsey. Other industries, including e-commerce, have done well throughout the pandemic. Bottomline: companies that were agile with planning in response to the pandemic will be well situated to seize opportunity during the recovery phase.

Already, comparisons are being made between the impacts of the pandemic to the impact of the financial crisis of the Great Recession more than a decade ago. Then, many companies emerged stronger than ever to enjoy years of growth. Today, finance leaders also see a silver lining in the current situation. PwC surveyed 330 finance leaders in early June and found that the majority (72%) believe they will be more resilient and agile in the long run, and 53% say the new ways they are serving customers will put them in a better position down the road.

Now more than ever, agility will help position companies to recover from the impact of the pandemic-and thrive going forward.

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